Question

In: Economics

In April approximately 22 million people filed for unemployment insurance.  In March the labor force was (BLS...

In April approximately 22 million people filed for unemployment insurance.  In March the labor force was (BLS data) 162,913,000 with Employment = 155,772,000 and Unemployed = 7,140,000.  What would April’s unemployment rate be approximately?

If natural unemployment is around 4% and from Okun’s Law approximately for every 1% point change in unemployment, GDP falls 2%, how much has GDP dropped in % terms?

If real GDP in March (FRED) was $19,221.970 billion ($19.22 Trillion), what is the drop in dollar value of production?

If Forecasting Company announced that they predict the mpc has fallen to 0.5, How much Government spending will need to be injected to get back to Un(natural rate of unemployment where actual and potential output are back to long-run levels)?  

Solutions

Expert Solution

March
Labor force 16,29,13,000
Employed 15,57,72,000
Unemployed 71,41,000
Unemployment rate Unemployed/Labor force
Unemployment rate (March) 4.38%
April
People filing for unemployment insurance 2,20,00,000
Labor force 16,29,13,000
Employed 13,37,72,000
Unemployed 2,91,41,000
Unemployment rate (April) 17.89%
For every 1% change in unemployment GDP falls 2%
From March to April Unemployment rate changed from 4.38% to 17.89%
Change in unemployment rate 13.50%
Change in GDP (twice of above) 27.01%
Real GDP in March 19,221.97 Billion Dollars
Real GDP in April (27% decrease) 14,030.45 Billion Dollars
Drop in production (difference of above) 5,191.52 Billion Dollars
MPC (marginal propensity to consume) 0.5
Government spending required to get back to normal production?
Fiscal multiplier= 1/(1-MPC*(1-taxrate))
Assuming taxes to be 30%
Fiscal multiplier = 1/(1-0.5*(1-30%))
Fiscal multiplier = 1.54
To fill the drop in production by government spending (G)
G = Drop in production / fiscal multiplier
G = 3,374.49

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